Marriott International is buying its rival Starwood, owner of the W and Sheraton chains, for $12.2bn (£8bn) in a deal that will create the world’s largest hotelier.

The new company would own 5,500 properties and more than 1.1m rooms, uniting Starwood brands including Westin, Le Méridien and St Regis with Marriott’s two dozen brands including Courtyard, Ritz-Carlton and Fairfield Inn. The next largest hotel company is Hilton Worldwide, which has 4,400 properties and about 720,000 rooms.

The stock and cash deal, if completed, is expected to add 50% more rooms to Marriott’s portfolio and give it more unique, design-focused hotels that appeal to younger travellers.

The groups said the tie-up would provide substantial economies of scale. The transaction is valued at $72.08 per Starwood share, representing a premium of about 19% on the share price before the merger rumours surfaced.

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The announcement on Monday is further evidence of a mergers and acquisitions boom in the US. M&A deals in the country this year have surpassed $2tn, up 55% on the same period last year, with the technology and pharmaceuticals sectors leading the way.

In April, Starwood announced its board was exploring strategic options. The company has struggled to grow as quickly as its rivals, particularly in “limited service hotels” – smaller properties without restaurants or banquet halls. They are often located near highways and airports or in suburban office parks.

There had been speculation about a potential deal with the Holiday Inn owner Intercontinental Hotels Group, and more recently Hyatt Hotels.

The Marriott deal comes amid record hotel occupancy and rates. During the first nine months of the year, guests filled 67.3% of the available rooms in the US, according to STR – the highest level since the research firm started collecting data in 1987. Guests have been paying an average of $120.35 a night; the previous record, adjusted for inflation, was $119.70 in 2008.

Marriott, based in Bethesda, Maryland, has been growing aggressively. In April, it acquired Delta Hotels and Resorts, making it the largest hotelier in Canada.

The Marriott and Starwood boards approved the acquisition unanimously; it must now be approved by the chains’ investors.

Arne Sorenson, Marriott’s president and chief executive, will take the same role in the combined company, whose headquarters will be in Bethesda. Marriott’s board of directors is to increase from 11 to 14, with the expected addition of three members of Starwood’s board.

Marriott said it expected to deliver at least $200m in annual savings in the second full year after the deal was completed. The merger will carry one-off costs of between $100m and $150m.

Following news of the deal, Starwood shares fell 5.45% in a sector hit by the terrorist attack in Paris on Friday night. “This is a terrible deal for Starwood shareholders,” analyst Jim Cramer said on CNBC’s Squawk on the Street.

Another analyst was less damning. “While the reasons behind the falling stock prices of each may be more to do with the weekend’s tragic events than today’s deal,” said Connor Campbell, a senior market expert at spreadex.com, “the takeover does intensify the pressure on the UK’s hotel companies (led by InterContinental) as they try to fight off the increasing market power of this new Marriott/Starwood mash-up”.

Between the two groups, the merged company would own about 14% of all US hotel rooms, although its proportion of higher-end rooms would be greater.